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Tesla shareholder seeks to bar Musk from dodging from Delaware pay ruling

Published 04/24/2024, 10:44 AM
Updated 04/24/2024, 03:16 PM
© Reuters. FILE PHOTO: Tesla, X (formerly known as Twitter) and SpaceX's CEO Elon Musk speaks with members of the media during the AI Safety Summit at Bletchley Park in Bletchley, Britain on November 1, 2023.   Leon Neal/Pool via REUTERS/File Photo
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By Tom Hals and Jody Godoy

WILMINGTON, Delaware (Reuters) -A Tesla (NASDAQ:TSLA) investor who successfully sued to void CEO Elon Musk's $56 billion pay package asked a Delaware judge on Wednesday to prevent the electric carmaker from bucking the court's authority by moving its legal home to Texas.

Richard Tornetta's legal team asked Delaware Chancellor Kathaleen McCormick (NYSE:MKC) to rule on his request before Tesla's June 13 annual meeting, where shareholders will vote on reincorporating in Texas and approving Musk's 2018 pay package.

"Defendants cannot now seek to run from this jurisdiction and undo years of litigation because they are unhappy with the outcome," said the plaintiff's legal team in a filing.

Tesla has been incorporated in Delaware for 21 years and has required shareholders to bring legal action in that state, the filing said.

Musk and Tesla did not immediately respond to requests for comment.

In January, McCormick voided the pay package, which Tesla estimated is worth up to $56 billion, calling it "unfathomable."

The judge found the stock option deal was negotiated by a board that lacked independence from Musk and that the company hid key details from shareholders before they approved it in a 2018 vote.

Musk has criticized Delaware and its courts following the ruling and has said the state, home to a majority of large publicly traded corporations, is trying to prevent companies from leaving.

The pay package granted stock option awards for approximately 304 million shares if Tesla hit various milestones, which it did. Musk has not exercised the stock options, which allow him to buy the Tesla stock at a deep discount.

Tornetta's legal team also asked the court on Wednesday to seize the stock options as another measure to prevent Tesla and Musk from avoiding the January ruling.

© Reuters. FILE PHOTO: Tesla, X (formerly known as Twitter) and SpaceX's CEO Elon Musk speaks with members of the media during the AI Safety Summit at Bletchley Park in Bletchley, Britain on November 1, 2023.   Leon Neal/Pool via REUTERS/File Photo

To try to reinstate the pay package, Tesla has employed an obscure legal maneuver in asking shareholders to "ratify" Musk's 2018 pay. Doing so could keep Musk motivated and potentially give Tesla an argument against the $6 billion in attorneys' fees that Tornetta's lawyers have sought, the company has said.

The shareholder's request comes a day after Tesla forecast rising sales this year and unveiled plans to roll out more affordable models in early 2025. This eased worries about slower growth and shares jumped more than 10% on Wednesday in early trading.

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